In the latest interim judgment in the long-running RBS rights issue litigation,(1) Justice Hildyard rejected RBS's claim that interview notes prepared by its in-house lawyers, group secretariat and external legal advisers (Wilmer Hale LLP and Travers Smith LLP, as agents for Wilmer Hale) as a part of internal investigations in the United States and the United Kingdom were privileged. Neither legal advice privilege nor lawyers' working papers privilege applied to such notes.
The litigation arose out of a number of Financial Services and Markets Act 2000 claims brought by the claimants concerning a rights issue of shares in RBS, taken up between May 15 2008 and June 6 2008. These were brought with a view to recovering substantial investment losses incurred following the collapse of RBS shares and on the grounds that the prospectus for the rights issue was inaccurate or incomplete.
The claimants sought and RBS resisted disclosure and inspection of two categories of documents:
- transcripts, notes or other records of interviews conducted by or on behalf of RBS with employees and ex-employees as part of 'Project Mortar' (RBS's investigation in response to two US Securities and Exchange Commission (SEC) subpoenas relating broadly to its sub-prime exposures); and
- transcripts, notes or other records of interviews conducted by or on behalf of RBS as part of its investigation into allegations by Victor Hong concerning RBS Greenwich Capital's marketing of Super Senior CDOs and other matters of which Hong became aware during his employment at RBS Greenwich (together, the 'interview notes').
The issues before the court were as follows:
- whether, if English law as the lex fori applied to the issue, the decision and reasoning in Three Rivers (No 5)(2) applied to preclude RBS's claim to legal advice privilege;
- whether RBS could rely on privilege relating to lawyers' working papers;
- whether RBS could rely on the application of US law to resist disclosure and inspection of the documents; and
- if RBS were entitled to maintain its claim to privilege under US law, whether the court could and should use its discretion to withhold disclosure and inspection notwithstanding that English law might be the lex fori.
Legal advice privilege covers communications between a client and its lawyer for the purpose of giving or receiving legal advice. The leading authority on its scope and application is found in Three Rivers (No 5). RBS sought to distinguish the facts of that case from the current ones (see further below).
Each of the interview notes, said RBS, recorded "a communication between a lawyer and a person authorised by RBS to give instructions to its lawyers" and was created for the purpose of enabling RBS to seek legal advice from its external counsel. As such the communications made (and evidenced in the interview notes) and gathered by RBS's lawyers from employees or ex-employees should be privileged.
Given their authority to communicate directly with RBS's external lawyers, the employees were described as an "authorised emanation of the client". RBS argued that Three Rivers (No 5) should therefore be distinguished because that case did not concern direct communication by employees with the corporation's lawyers, as here (Three Rivers (No 5) dealt with documents prepared by and communications between employees for the dominant purpose of the bank obtaining legal advice).
The claimants submitted that, on the contrary, the reasoning in Three Rivers (No 5) properly understood has a more general application. Accordingly, the gathering and communication of information by someone other than a corporate client is not privileged, even if that information is gathered and communicated by that person to his employer's lawyer "with the authority and at the request of the client and/or its lawyers, and even if the client is that person's employer".
Should Three Rivers be applied and did legal advice privilege therefore attach to the interview notes?
The judge confirmed that Three Rivers (No 5) is not confined to its facts. The essence of the Court of Appeal's decision is that, in a corporate context, for the purposes of legal advice privilege information gathered from an employee is no different from information obtained from third parties, even if that information is collected in order to be shown to a lawyer to enable the provision of fully informed advice to the client, the corporate entity.
Further, the fact that RBS's employees were 'authorised' to communicate directly with RBS' lawyers did not mean they were the 'client' or a recognised emanation of the client, sufficient to distinguish Three Rivers (No 5). In any event RBS admitted that its employees and ex-employees did not have authority to seek or receive legal advice.
- the client for the purposes of privilege consists only of employees authorised to seek and receive legal advice from the client's lawyer; and
- that legal advice privilege does not extend to information provided by employees (and ex-employees) to, or for the purpose of being communicated to, a lawyer.
Accordingly, RBS's claim to the protection of legal advice privilege for the interview notes failed.
Could RBS rely on lawyers' working papers privilege in the alternative?
Lawyers' working papers are privileged under the legal professional privilege doctrine (see Balabel(3) and Three Rivers (No 5)). RBS's main submission, for the application of this head, centred on the fact that the interview notes were more than verbatim transcripts, but were notes. This alternative claim also failed.
There is a real difference between a document reflecting a train of enquiry or a legal adviser's "mental impressions" on the one hand, and a document which reflects or "gives a clue" as to the trend of his or her legal advice (Sumitomo(4) applied). The interview notes in this case were the former.
Should the lex fori be US law for the purposes of privilege and could the court exercise its discretion in this regard?
The judge re-affirmed that questions of privilege are for the lex fori.
RBS attempted to argue that the concept of legal professional privilege is a fundamental right as opposed to merely an aspect of evidence. As such, the lex fori to determine the issue should be the law of the place where those documents are most closely connected or came into existence. On this basis, RBS sought to rely on the US law test for privilege (the interviews were carried out by RBS's US lawyers and at least some came into existence in the context of SEC investigations).
This argument was rejected, largely on public policy grounds. The proposed approach would be burdensome, as it would require a court to inform itself as to whether privilege could be claimed in other jurisdictions which might be deemed relevant before it could be in a position to determine whether to uphold a claim to privilege. This was impractical.
In strictly applying the rationale behind the concept of 'client' in Three Rivers (No 5), the decision enhances the prospect of a counterparty obtaining copies of interview notes arising from internal investigations. It is also likely to lead to parties seeking to rely on and test the boundaries of litigation privilege (a head of privilege not relied on by RBS).
RBS recently dropped its planned appeal of the decision, despite being granted a 'leapfrog' certificate to appeal directly to the Supreme Court. Accordingly, the wait goes on for Three Rivers (No 5) to be revisited by the Supreme Court.
For further information on this topic please contact Maria Petzsch or Parham Kouchikali at RPC by telephone (+44 20 3060 6000) or email ([email protected] or [email protected]). The RPC website can be accessed at www.rpc.co.uk.
(2) Three Rivers District Council v The Governor & Company of the Bank of England (No 5)  QB 1556; Three Rivers District Council v The Governor & Company of the Bank of England Rev 1  EWCA Civ 474.
(3) Balabel v Air India  1 Ch 317.
(4) Sumitomo Corporation v Credit Lyonnais Rouse  CP Rep 72.